Negative gearing explained, and what changed in 2026

Negative gearing is when the rent from an investment property does not cover the costs of holding it. The rules around it changed substantially in 2026, so what applies to you now depends on when you bought.

Tax rules change and everyone’s situation is different. This is general information, not tax advice. Talk to a registered tax agent about your own position before acting on any of it.

What is negative gearing?

A property is negatively geared when the rental income is less than the costs of owning it. Those costs include loan interest, insurance, council rates, management fees, repairs and depreciation.

You are running the property at a loss. The strategy relies on the property growing in value, and the rent rising over time, by more than the losses you absorb along the way.

Under the long-standing rules, that annual loss could be deducted against your other income, including your salary. If the property cost you $10,000 more than it earned and you were on a $100,000 salary, you were taxed as though you earned $90,000. That deduction is the part that has changed.

What changed in 2026?

The 2026 Federal Budget, handed down on 12 May 2026, limited negative gearing to new builds. The legislation has since passed Parliament, with the changes taking effect from 1 July 2027.

The date that matters is 7:30pm AEST on 12 May 2026. That is the line between the old rules and the new ones.

Which rules apply to you?

If you owned the property before Budget night, nothing changes. Properties owned, or under contract but not yet settled, at 7:30pm on 12 May 2026 are grandfathered. You keep negative gearing under the existing rules for as long as you hold the property, regardless of how many properties you own.

One important catch: the protection attaches to the property, not to you. Sell a grandfathered property and the protection does not carry across to whatever you buy next.

If you buy an established property after Budget night, you can negatively gear it up to 30 June 2027, then the new rules apply. From 1 July 2027, rental losses on that property can no longer be offset against your salary or business income.

The losses are not lost entirely. They can be offset against residential rental income, including rent from other properties you own, or against a capital gain when you sell a rental property. Anything left over can be carried forward to future years.

If you buy an eligible new build, negative gearing continues to be available against all your income, including salary. The reforms were designed to direct investment towards properties that add new housing supply.

What counts as a new build?

Broadly, a property that adds to housing supply rather than changing hands. That includes newly constructed dwellings and construction on previously vacant land, and can include a knock-down rebuild where the number of dwellings increases, such as a duplex replacing a single house.

The precise definition matters a great deal under the new rules, and the detail is still being worked through in guidance material. If you are buying with the tax treatment in mind, confirm the property qualifies before you commit rather than assuming.

Capital gains tax is changing too

The reforms also affect capital gains tax on investment property from 1 July 2027, including changes to how the long-standing 50% discount works. The two changes interact, so the tax position on a property bought now is different from one bought before Budget night.

This is an area where the detail is still settling and where the difference between getting it right and wrong is measured in tens of thousands of dollars. Get advice specific to your situation from a registered tax agent.

Was negative gearing ever a good strategy?

This part has not changed, and it is worth saying plainly: a tax deduction is not a profit.

If a property costs you $10,000 a year and you get some of that back through your tax return, you are still out of pocket. The strategy only works if capital growth eventually exceeds everything you have paid along the way. That depends on buying a quality property in a location where values actually rise. Buy the wrong property and the tax break simply reduces the cost of a bad investment.

There is a cash flow risk as well. You are committing to fund the shortfall every month, for years. If rates rise, if the property sits vacant, or if your income changes, you still have to cover it. More on investment mistakes to avoid.

Positive gearing, where the rent covers the costs, is the alternative. It produces less of a tax deduction and usually less spectacular growth, but it pays for itself while you hold it.

What this means if you are buying now

The new versus established decision is now a tax decision as well as a property one. That was not true before 2026. New build or established property.

It also raises the importance of buying something that stacks up on its own numbers rather than on the tax treatment. A property that roughly covers its own costs is far less exposed to a rule change than one that depends on a deduction. Work out the rental yield.

If you already own investment property, keep your contracts, settlement statements and loan documents somewhere safe. Proving what you held at Budget night now matters permanently.

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